Indian Banks Are In Trouble(Here’sWhy)

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Indian banks are in trouble, and the trouble-makers refuse to toe the line.

Up to 8,167 borrowers—despite their ability to repay—have defaulted on Rs76,685 crore ($11.4 billion) of loans taken from public sector banks in Asia’s third-largest economy. Answering a query in the Rajya Sabha on July 19, India’s finance minister Arun Jaitley said cases have been filed against 1,724 such entities, called wilful defaulters.

A wilful defaulter is one who fails to repay the lender despite being able to, or uses the funds meant for repayment for other activities.

The bad news is that this may just be a fraction of such defaults.

Bad loans are a sticky issue among Indian banks staring at huge losses due to these toxic assets. An estimated Rs13 lakh crore in bad loans have bogged down the banking system itself, prompting everyone—from the Reserve Bank of India (RBI) to the government—to fire-fight.

RBI governor Raghuram Rajan had directed banks to make provisions to cover such loans by March 2017. This has resulted in a massive erosion of profits of many big lenders. Rajan has said that the RBI will soon make the list of wilful defaulters public.

The government, on the other hand, announced on July 19, that it will infuse Rs22,915 crore as equity in public sector banks in an effort to strengthen their weak balance sheets.

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